What's going on?

Prices in Britain rose at the fastest pace in two years in November! The weaker pound is largely to blame � but that�s not the whole story.

What does this mean?

As we�ve discussed before, a weaker currency typically leads to higher prices as the cost of importing things goes up. The pound has certainly weakened this year (it�s down about 15% versus the US dollar) � which has made higher inflation a near certainty in Britain. Consumer prices (i.e. the cost of things that Brits buy in stores) are already starting to pick up � although by only 1.2% versus a year ago. All in all, economists are virtually unanimous in their expectations that inflation is going to increase significantly in 2017.

Why should I care?

The bigger picture: Inflation is going up around the world.
Britain is particularly vulnerable to a rise in inflation due to the big selloff in its currency this year � but prices are going up in most other major economies as well. Part of the reason is the rebounding oil price, which is now higher than it was a year ago � energy is a big and frequent expense for companies and people. The increasing costs of other commodities, like iron ore, are also making it more expensive to produce goods. Most people should prepare for higher prices � which will, of course, mean you�ll probably have to buy less stuff (or hope for a raise at work!).


For markets: Higher inflation could mean higher interest rates in Britain.
It�s usually bad for the economy if inflation increases too much. For example, if goods cost more, people tend to buy fewer things (as mentioned above). Low interest rates stoke inflation by making it cheaper to borrow � and thus spend � money (and the more that people spend, the higher prices can go). As inflation increases, there is pressure on the Bank of England to raise interest rates to prevent inflation from going up too much. Remember, higher interest rates are generally bad for bonds and, sometimes, for stocks too (see more here).